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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    BlackRock, Lombard Say Faster Inflation Calls Are Premature

    This article may be of interest to subscribers. Here is a section:

    “As the dust settles in the wake of today’s FOMC, we will be focusing upon whether any additional back-up in yields is accompanied by a further widening of breakevens,” said Richard McGuire, the head of rates strategy at Rabobank. “If so then this argues that the move higher in rates is sustainable.”

    But as long as U.S. yields don’t rise in a chaotic fashion, risk assets including emerging-market and high-yield corporate debt are expected to outperform, according to BlackRock’s Seth. “Rates can drift higher and still remain a positive backdrop for the risk assets, as long as the vulnerability is under control,” he said.

    A Bloomberg Barclays index on global credit returns has gained 11% over the past year, compared with a loss of 2% for a gauge tracking Treasuries. BlackRock switched to a neutral duration position in February from underweight. The fund likes notes sold by Chinese real estate companies and the nation’s onshore bonds.

    “The lack of correlation with the rest of the global developed markets also provides a diversification benefit,” Seth said of Chinese debt.

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    Why in the World Would You Own Bonds

    This article by Ray Dalio may be of interest to subscribers. Here is a section:

    …History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. Through their powers central banks can, at least temporarily, put a lid on interest rates and keep short-term interest rates low relative to long-term rates so that it becomes profitable to buy bonds with cash, which central banks abundantly provide which makes real interest rates very negative. For example, during the 1930-45 period the Fed kept the bond yield around 2.5% and the cash yield around 1%, which made it profitable to borrow cash and use it to buy and own bonds. While that can make holding bonds financed with cash profitable at low rates, under such circumstances both the cash rate and the bond rate are bad. Naturally, because cash rates are so low it pays to borrow cash and invest it in investments that are higher-returning. Back in the 1930-45 period, the Fed was able to keep yields there, and the way they did that was also through outlawing gold and the movement of capital elsewhere. So, when I look at it, while I want to be short bonds (because they have the most terrible fundamentals), I do know that central bankers can keep cash more terrible, and I do know that they might have to prevent the movement to other storehold of wealth assets and other countries. 

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    Email of the day - on gold ETF holdings

    On gold, I notice there is now significant weakness in the chart for Total known holdings of gold ETF. Will we need to see this stabilize and turn up before any rise is likely in spot gold prices?

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    Gold ETF Exodus Quickens in Ominous Sign for Faltering Metal

    This article by Yvonne Yue Li and Eddie Spence for Bloomberg may be of interest to subscribers. Here is a section: 

    Gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs,” Carsten Fritsch, an analyst at Commerzbank AG, said in a note. “A shift in sentiment among investors would be needed for gold to free itself from its extremely difficult predicament.”

    Federal Reserve officials slated to speak this week may give more insight into the economic outlook and how the central bank might respond to the recent tumult in bond markets. Higher yields dim the appeal of the non-interest-bearing metal.

    “Gold remains vulnerable to a further tightening from real rates,” TD Securities analysts led by Bart Melek said in a note.

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    Copper Crunch Set to Ease With More Supply Heading to China

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Chinese copper smelters grappling with a shortage of semi-processed material are set to see an influx of supply from South America, a sign that the tightness helping supercharge the metal’s rally may be easing.

    Starting next month, there’ll be a large number of ships arriving at Chinese ports from Chile and Peru, the nation’s main suppliers, as bottlenecks ease, according to IHS Markit lead shipping analyst Daejin Lee. The amount of concentrate expected to reach the Asian nation may climb almost 60% from February’s volume, he estimated.

    “The narrative could be shifting from very tight supply on account of port congestion and logistics difficulties, and even the waves in Chile, to more easier supply,” said Ed Meir, an analyst with ED&F Man Capital Market. That could take a little bit of the air out of copper’s rally, he said.

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    Email of the day on paying up for commodities

    Thanks again for your very calm analysis of these volatile times. I appreciate it a lot. I enjoyed very much your comments about the tendency of remembering the end of the events/experiences. There is a very good experiment on this done by Daniel Kahnemann. On a different note; you seem to be very bullish on copper, but it seems not enough to invest on that theme yet. Are you planning to invest? Otherwise, what would be a good instrument to invest for the medium/long term on that theme. Thanks in advance

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    Long-End Yields Surge in Biggest Treasury Selloff Since January

     This article from Bloomberg may be of interest to subscribers. Here is a section:

    The selloff in Treasuries sent the yield on the 30-year bond surging on Wednesday, putting the long-end
    benchmark on track for its biggest one-day advance since early January.

    Rates climbed across notes and bonds, with the long-end increasing most and the curve steepening. The 30-year yield jumped by around 11 basis points at one stage, hitting a one-year high of 2.29%, while the 10-year rate rose as much as 9 basis points to 1.43%.

    Global bond markets are suffering this year amid the prospects for U.S. stimulus and a surging reflationary narrative, with volatility gauges climbing to multi-month highs. That’s prompted fears over a potential tantrum in havens, such as Treasuries and German bonds. While Federal Reserve Chairman
    Jerome Powell this week called the recent run-up in bond yields “a statement of confidence” in the economic outlook, the move raises pressure on central banks to keep financing conditions easy.
     

    “The market is nervous about additional stimulus, worried about the risks of higher inflation, and concerned about QE tapering,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities. “The selloff is likely being exacerbated by convexity hedging and positioning stop-outs.”

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    Gold Extends Rebound on Wavering Dollar, Inflation Concerns

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    “I think the strong buying in gold stems from a sharp bounce from new lows and strong close on Friday,” said Tai Wong, head of metals derivatives trading at BMO Capital Markets. “And a softer dollar negates the impact of higher U.S. yields.”

    A revival in Indian gold imports could also indicate some physical dip buying of bullion, according to Marcus Garvey, head of metals and bulk commodity strategy at Macquarie Group Ltd.

    Meanwhile, Democrats begin the final push for President Joe Biden’s $1.9 trillion stimulus bill this week, and the Biden administration may unveil a multitrillion-dollar recovery package in March centered on infrastructure.

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    Email of the day on silver's relative strength

    Silver price appears to be holding up much better vs. gold price. Any idea why?

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